Credit is all about building and maintaining trust in your ability to repay debt. Imagine you are having dinner at a local hometown restaurant. When you receive the bill you realize that you’re short on cash and ask the waiter if you can pay later. The waiter kindly agrees because he/she knows you and trusts that the bill will be paid. However, what if you are not in your hometown and you are a stranger to the waiter, chef, and owner? It is necessary to have an agreed upon way to prove your trustworthiness.
Today, in the US, there are three key institutions that are responsible for tracking and quantifying your trustworthiness: Equifax, Experian, and Transunion. Together, these three institutions assemble a record of how well you have repaid debt in the past and send this information to two primary credit scoring companies: the Fair Isaac Corporation (FICO) and VantageScore.
Both companies use this information to assign you a credit score ranging from 300 to 850. A credit score between 580-669 is considered fair and a score between 670-739 is considered good. The closer your score is to 850 the better, allowing you to access better financial products with lower interest rates so you won’t have to pay as much back.
However, most lenders only look at your FICO score when assessing your creditworthiness, so be sure to use any free VantageScore reports you might get from websites like mint.com and creditkarma.com only as a guideline.